How to Say ‘Supply Side’ in German

Christian Lindner (FDP), German Finance Minister, in Berlin on May 12.


Photo:

Britta Pedersen / Zuma Press

The Biden administration is struggling as even Europeans begin to take a better look at economic policy than Washington does. Witness supply-side thinking taking shape in Berlin in response to Germany’s inflation and energy insecurity.

Free-market Liberal Democratic Party (FDP) Finance Minister Christian Lindner this month released a working document calling for a supply-side overhaul to prevent stagnant inflation — Mr. Lindner talks about the danger lurking in his country’s economy. He acknowledged that the pandemic of supply chain disruptions and fluctuations in energy prices during the Ukraine war were responsible for the immediate increase in inflation.

But he also noted that Germany faces deeper challenges from productivity and demographic stagnation. The solution is not the public spending on demand that most other governments are considering. Mr. Lindner signed a 30 billion euro ($31 billion) subsidy package and cut energy taxes to ameliorate current inflation. But he tries to draw a line below that in his strategy paper by warning that continued demand-side stimulus will only make inflation worse.

His new strategy is mainly focused on unlocking private investment to boost productivity and supply to meet the demand that Berlin’s monetary policy and the European Central Bank have created. Policy options include tax reform to encourage investment and deregulation of labor and product markets to improve competitiveness.

The working session was the opening in what Mr. Lindner envisioned as a larger conversation. That is the light on policy specifics, which are expected to emerge from a listening tour with businesses and labor unions in the coming months. It also suffers from some predictable blind spots, such as a reluctance to admit that Germany’s costly enthusiasm for renewables is a failure of supply-side policy.

Alas, he may be a prophet without honor in his own country. His FDP is the most junior partner in Germany’s three-party coalition government, and his supply-side views are unlike those of his leftist and Social Democratic Party colleagues.

There is more reason to start explaining German supply issues to voters and try to build consensus behind the reforms. And all the more reason to translate Mr. Lindner’s report for the benefit of Washington politicians who have forgotten past US supply successes.

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Alley Einstein

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